Bonds & Bullion Bid As Bullard & Blinken Bloviation Batters Big-Tech & Bitcoin

Tyler Durden's Photo
by Tyler Durden
Thursday, Feb 17, 2022 - 09:01 PM

A renewal of old concerns - geopolitical issues, economic growth - sparked a significant risk-off stance today in the markets.

In addition to the chaotic geopolitical headline hockey from the US-Ukraine-Russia storm, the US economy may be slowing (jobless claims data jumped awkwardly higher, Philly Fed disappointed, and Housing Starts tumbled), just as The Fed's Jim Bullard reiterated his uber-hawkish by calling for the rest of The Fed to come to his dark side or "risk the credibility of The Fed" itself.

Russia is establishing a pretext to invade Ukraine, according to comments by US Secretary of State Antony Blinken to the UN Security Council.

"This could be a violent event that Russia will bring on Ukraine, or an outrageous accusation that Russia will level against the Ukrainian government.

"Russia may describe this event as ethnic cleansing or a genocide making a mockery of a concept that we in this chamber did not take lightly," he added.

"We believe these targets include Russia's capital (or) Ukraine's capital Kiev, a city of 2.8 million people," he said.

Bullard said that Core PCE - The Fed's favorite inflation measure -  "does not have the reputation of coming down naturally."

"So we're way on one side of the ship and I think we have to re-center. I want to re-center faster than some of my colleagues," Bullard said.

"I think there is actually widespread agreement across financial markets" that the Fed should "get going," Bullard said.

Bullard said he wants the Fed to start to shrink its $9 trillion balance sheet in the second quarter, adding that the Fed should have a "plan B" to sell some of the longer-term bonds from its portfolio to push longer-term interest rates higher.

The reaction to all this was risk-off - big-tech stocks leading the charge lower (along with crypto) as bonds and bullion were bid as safe-havens.

Interestingly, as Bullard bloviated and stocks slumped, the market's expectations for Fed hikes actually slipped a little lower (dovish) - perhaps as investors believe Pavlovian-ly that the further we fall the closer we get to the Powell Put. The market sees only a 39% chance of a 50bps hike in March...

Source: Bloomberg

...and now sees only 6 rate-hikes by the end of the year...

Source: Bloomberg

The problem is - the market is now already pricing in a rate-cut for next year!!

Source: Bloomberg

This was the worst day of the year for stocks

Stocks were clubbed like a baby seal on the back of all this with Small Caps and Big-Tech leading the plunge (Nasdaq down 3%)...The majors closed on the lows of the day.

Taking all the majors into the red for the week...

...and pushing stocks back down near the late-Jan lows (only about 2% off those YTD intraday lows)...NOTE that the closing low was considerably higher than those lows.

The so-called "Bubble" markets were monkey-hammered today with ARKK really suffering...

Source: Bloomberg

HY Credit made new cycle high spreads today

Source: Bloomberg

Bonds were bid with yields down across the entire curve, as the belly outperformed (7Y -8bps, 2Y & 30Y -4-5bps). The moves were a big bid on reports of shelling in Ukraine, limp back to unch as both sides argued. Then another dump on Biden and Blinken comments, then a lift for the long-end as Bullard unleashed his inner hawk...

Source: Bloomberg

On the week, 30Y is up around 7bps while 2Y is down 2bps, belly flat.

The 10Y Yield dropped back below 2.00% today, erasing most of the Bullard-driven spike from last week...

Source: Bloomberg

The dollar slipped back to the low end of its recent range, below pre-Fed levels...

Source: Bloomberg

The Ruble was sold, but not aggressively so...

Source: Bloomberg

Gold soared back above $1900 for first time since June 2021...

But Bitcoin was dumped as gold bid...

Source: Bloomberg

Bitcoin's relationship with global markets has been strengthening despite being touted by many as an uncorrelated hedge against turmoil...

Source: Bloomberg

Oil tumbled today as Iran nuke talks deal optimism trumped Russia-Ukraine pessimism (with April WTI hovering around $90)...

Finally, for all the pain individual stocks have felt so far - even before The Fed actually begins to tighten policy - it is a nothingburger compared to the record levels of excessive valuation that remains in the market...

As Bloomberg's Ven Ram noted, the Warren Buffett indicator - Total stock market capitalization divided by GDP - suggests that the recent frenzy that drove stock valuations to astronomical highs is yet to deflate fully.